Helping businesses secure and maximise R&D tax credits and grants

Dublin: +353 1 566 2001

info@myriadassociates.ie

R&D Tax Credits

R&D Tax Credits enable businesses that incur costs in developing products, processes, software or services to receive a corporation tax deduction or cash payment from Revenue. Myriad Associates will ensure your R&D tax credits is fully maximised.

R&D Tax Credits

R&D Tax Credits Explained

What are R&D Tax Credits?

bulb image

The R&D Tax Credits incentive is designed to encourage innovation and increase spending on R&D activities for companies operating in Ireland. It’s one of the government’s top incentives for encouraging investment in research and development. The credit is calculated at 25% of qualifying expenditure and is used to reduce a company's Corporation Tax (CT).

Many businesses don’t realise that they qualify for R&D Tax Credits or that they are not claiming their full entitlement. In 2014, the Irish government allowed €553m in R&D tax credits, which was equivalent to 12% of all CT receipts.

Who qualifies for R&D Tax Credits?

troubled image

Any company in any industry may be eligible for R&D Tax Credits. The key is that the company must be undertaking development activities that seek to achieve an advancement in technology. The project must contain a level of technical uncertainty for a competent professional, so if you faced questions that left you and your team scratching your heads to find a solution, that’s a good indication that qualifying R&D activities were taking place. If your company is taking a risk by innovating, improving, or developing a process, product, or service, then it can also qualify for R&D tax credits.

A good test to determine if the work undertaken qualifies for R&D relief is whether your project team faced technological uncertainties at the start of the project. That means that your team did not know from the outset whether a particular technological goal was achievable. If you can show that your project goes beyond applying existing technologies and demonstrate that it breaks new ground, you can claim R&D tax relief.

R&D Tax Credits Calculator

This R&D tax credits calculator will provide you with an estimate of the corporation tax savings that you may receive from HMRC following a claim for R&D tax relief.

R&D Tax Credits Calculator

Enter the annual expenditure on staff, agency workers, individual consultants and materials incurred in the R&D process (€)

€0 €5m

Staff emoluments include gross pay, employer's PRSI, pension contributions, bonus payments, health insurance, company pension payments and other remunerations items. Staff agency costs relate to the invoice value (excl. vat) paid to the staff agency for using agency workers. Individual consultants who are hired on a part time or short term basis (no longer then 6 months). Materials used in qualifying R&D activities.

Enter the annual expenditure (before VAT) on R&D activities contracted to a University or Institute of Higher Education (€)

€0 €1m

R&D cost paid to a university or institute of higher education in any relevant EU member state can be claimed.

Enter the annual expenditure (before VAT) on R&D activities contracted to another person (not a university or institute of higher education) (€)

€0 €1m

R&D costs paid to another person (not to a university or institute) who is not a connected person can be claimed.

Enter the annual expenditure (before VAT) on buildings, plant and machinery for R&D (€)

€0 €1m

Expenditure on the construction or refurbishment of a building, plant and machinery used for R&D activities may qualify where such expenditure qualifies for capital allowances.

total saving: €510,625

Estimated R&D Tax Relief Calculation

This R&D Tax Relief Calculator only gives a rough estimate of the potential corporation tax relief that you may be eligible to claim. It is based upon your estimate of your R&D costs. We recommend a thorough review to make sure you identify all qualifying R&D projects and all eligible costs. In our experience companies that submit their R&D tax relief claims themselves, or through a non-specialist accountancy firm, often end up significantly underclaiming. Contact the R&D tax specialists at Myriad Associates to make sure your R&D tax relief claim is fully optimised.

The R&D Tax Credits Claim Process

How to claim R&D Tax Credits

R&D tax credit claims are monitored and processed by the Revenue Commissioners. The R&D tax relief will need to be claimed by submitted by completing the CT1 form through the Revenue Online System. Claims must be submitted within 12 months of the end of the accounting period during which the R&D activities took place. Although it is not a legal obligation, we recommend that a R&D tax claim report is produced that justifies the technical advancement and uncertainties as well as details the eligible expenditure that is being claimed on a project by project basis.

How are R&D tax relief credits paid?

The R&D tax credit is automatically offset against corporation tax liabilities, once the details of the claim have been entered in the CT1 return. Unused credits may be offset against liabilities from previous years, carried forward for subsequent years, or paid as a cash benefit (after the credit has been offset against the corporation tax of the current and preceding accounting periods and an excess amount remains). Payable credits are paid in three instalments:

  • 1st payment: no earlier than 9 months after the end of the relevant period
  • 2nd payment: 12 months after the first payment
  • 3rd payment: 24 months after the first payment

Is it likely Revenue will undertake an audit if I make a R&D tax credit claim?

Revenue can audit any R&D tax claim made up to four years from the end of the claim's accounting period. Revenue will often ask claimants to provide information about the basis of the claim, and may carry out more formal desk and field audits. A claim that is overstated or does not meet the requirements of the R&D tax credit scheme must either be repaid in part or in full, with interest, and Revenue may also raise a penalty.

Companies making an R&D tax credit claim must maintain contemporaneous and relevant records of the expenditure incurred in carrying out the R&D activities. The quality and quantity of the records kept can affect the outcome of an audit.

What activities can be included in a R&D Tax Credit claim?

In terms of qualifying tasks, the following activities would be considered eligible for R&D tax credits:

  • defining technical objectives;
  • identifying uncertainties;
  • feasibility studies;
  • reviewing new and competing technologies;
  • analysing, designing and developing the technology;
  • producing technical specification or other documents to explain and support the R&D project and advancement;
  • testing the product, process or software;
  • planning and managing projects.

In addition, certain indirect support activities may qualify for R&D tax relief, such as:

  • administration, finance, and personnel services specifically required to support R&D activities;
  • training to support R&D.

What R&D expenditure can be claimed?

You can claim relief of 25% on qualifying expenses. The main areas of costs that can be claimed are:

  • staff costs (salaries, company pension contributions, employer's Pay-Related Social Insurance [PSRI], bonus payments, and health insurance);
  • agency workers (externally provided workers),
  • individual consultants
  • materials used in R&D or prototyping

What staff roles can be included in a R&D Tax Credit claim?

It is not uncommon for an R&D team to consist of many individuals from different parts of the business. Your R&D project team may include the R&D Manager, a Lead Developer, Engineers, Project Co-ordinators, CAD Engineers, Quality Control and Testing specialists, and Cost Accountants, as well as members of the senior management team.

What could R&D Tax Credits be worth to a small or medium business?

R&D Tax Credits for profit-making SMEs

The R&D tax relief would enable a profitable SME to reduce the amount of corporation tax they pay on profits for the period, by the amount of the enhanced deduction. The current R&D tax relief rate is 25% of qualifying R&D expenditure. If the deduction is greater than the SME’s profit for the period, then this will create a loss for corporation tax purposes.

R&D Tax Credits for loss-making SMEs

Where the additional enhanced R&D deduction is greater than the SME’s taxable profit for the relevant accounting period then this creates a loss for corporation tax purposes. The SME can then:

  • carry back the loss to the previous accounting period (if there was a taxable profit);
  • carry the loss forward and offset against future profits;
  • surrender the loss to Revenue in return for a payable R&D tax credit (after the credit has been offset against the corporation tax of the current and preceding accounting periods and an excess amount remains).

A tax credit payable is paid to the company by Revenue in three instalments over a period of 33 months. The first instalment (33% of the excess amount) is payable no earlier than the 21st day of the ninth month follow the end of the company's accounting period in which the R&D expenditure was incurred. The remaining balance is then used to reduce the company's corporation tax liability for the next accounting period. If any excess amount remains, a second instalment of 50% of the amount remaining is payable no earlier than 12 months after the payment of the first installment. The last instalment is paid, if any balance remains after reducing the company's corporation tax liability for the following accounting period, no earlier than 24 months after payment of the first instalment.

You can find out more about corporation tax research and development tax relief on the Irish Revenue website.

How Myriad Associates Can Help

Why choose Myriad Associates as your specialist R&D tax credits advisor?

By profiting from our specialist knowledge and experience, you can be sure of maximising your R&D tax relief claim. As a rule, Myriad Associates submit R&D tax relief claims that are up to three times higher than in-house prepared claims or those filed by generalist accountants.

  • We handle your R&D claim from start to finish, taking up just two to three hours of your time.
  • We can maximise your R&D claim because our expert consultants can identify your qualifying projects and all your eligible expenses.
  • We write technical reports describing your projects to support your claims.
  • We make sure Revenue handles your claim promptly, because of our right-first-time approach and because of our outstanding relationship with R&D tax inspectors.
  • Our 5-Step Claim Process is simplicity in itself, so you always know where we are with your claim.

We identify all your R&D activities

We capture all your R&D expenditure

We write your R&D technical reports

We submit your R&D Tax Relief claim

We work with Revenue to agree your R&D claim

With just two to three hours of your time we'll take care of your claim from start to finish

  • 100% success. We have successfully claimed R&D tax relief for all our clients, for over ten years, and without exception.
  • An unbeatable offer. Confident of delivering a winning service, we offer our services on a success-only basis.

You can download our information sheets on R&D Tax Relief for Software Development Companies, and for Manufacturing & Engineering Companies.

Frequently Asked Questions (FAQs)

Finance & Tax FAQs

How far back can I make a claim for R&D tax credits?

A business must submit its R&D tax relief claim within 12 months of the end of the accounting period during which the R&D activities took place. To make a claim, the business will need to complete the CT1 form through the Revenue Online System.

What happens if you make a late claim for R&D tax relief?

Revenue will not allow a late claim based on not having sufficient time or not being aware of the R&D tax relief scheme.

Will Revenue make an enquiry into the Company’s tax affairs if I make a R&D Tax Credits claim?

When Revenue receives a claim, it follows one of two processes:

  • If the R&D credit is to be used only to offset corporation tax liabilities, it is processed without any manual checks.
  • If the claim is for a payable credit, Revenue will carry out certain verification checks, such as ensuring that all returns are up to date, reviewing the computation and checking the previous claim. Where no issue arises, normal processing continues. If an issue is found, Revenue performs an intervention (an audit).

We strongly advise that a claim for R&D tax relief is supported by a detailed report which outlines the technical advancement and uncertainties as well as providing a detailed breakdown of the eligible R&D costs.

In 2014, Revenue made 162 interventions (from 1,570 claims); there were 178 interventions in 2015 from 1,535 claims (11.5%).

What happens during an audit?

A Revenue intervention of an R&D claim consists of two tests:

  • The "science" test, to ensure that the activities included in the claim meet the statutory definition of R&D activity.
  • The "accounting" test, to ensure that the costs incurred in carrying out the qualifying activity have been properly tracked and accounted for.

Revenue has a panel of experts which it consults as required when completing the science test.

What section of the Corporation Tax (CT1) return do I need to complete when making an R&D tax relief claim?

Section 766 (qualifying activities) of the CT1 return must be completed within 12 months of the end of the accounting period in which the business incurred the R&D expenditure.

What happens if some of the Research and Development work that my company carried out is subcontracted to another company?

One of the conditions for a company to make an R&D tax credit claim is that the qualifying R&D activity must be carried out by the claimant company. There are two situations in which relief is available to a company that has not carried out all the qualifying R&D work:

  • A company which carries out qualifying R&D activities and pays a university or institute of higher education to carry out qualifying R&D activities can claim relief, limited to 5% of the expenditure incurred by the company itself on R&D activities or €100,000, whichever is greater
  • A company which carries out qualifying R&D activities and pays another person who is not a connected party to carry out qualifying R&D activities for the company can claim relief, restricted to 15% of the expenditure incurred by the company itself on R&D activities or €100,000, whichever is greater.

In either case, the company must incur at least the same level of expenditure on qualifying activities which it carried out itself, and the subcontracted activity must qualify as R&D in its own right. The Company must notify the subcontracted party in writing that they may not make an R&D tax credit claim for these activities.

What happens if some of the R&D expenditure has been funded by a grant or subsidy?

Any expenditure which is met directly or indirectly by any grant aid or assistance from the state, or any public or local authority of any other agency of the state or of another relevant EU or EEA member state will not qualify for R&D tax relief.

This means that if your company has received a relatively small grant, your company could lose money overall, as the grant can significantly reduce what your company can claim in tax relief. This is why you should always seek professional advice when making an R&D tax credit claim.

(See also: R&D Grants)

Eligibility FAQs

Does my project qualify for R&D Tax Credits?

Many businesses don’t realise that they are undertaking eligible qualifying activities. It is not uncommon for their accountants to forget to tell them about R&D tax credits or even to tell them that they don’t qualify. If your technical lead (the R&D manager, lead engineer, or lead developer) is struggling to overcome the technical challenges of your project – if they are scratching their head wondering how to proceed, or losing sleep worrying about the technical uncertainties they face – your project will almost certainly qualify for R&D tax credits.

What type of software projects qualify for R&D Tax Credits?

Common examples of software development projects that may qualify for R&D tax relief include:

  • state-of-the-art software for new projects, or new functionality for existing R&D projects;
  • tools to extend the functionality of application software programs or of an operating system;
  • extensions to database software, programming languages, or operating systems;
  • software development tools, such as tools to port data across platforms, tools for image processing or character recognition;
  • novel data management techniques, such as new object representations and new data structures;
  • innovative methods of capturing, transmitting, manipulating, and protecting data;
  • software to run new computer hardware;
  • software to run on devices with pre-installed operating systems, such as handheld GPS, mobile phones, and tablets; or,
  • means of integrating hardware and software platforms.

What type of manufacturing and engineering projects qualify for R&D Tax Credits?

Common examples of product and process development projects that may qualify for R&D tax relief include:

  • innovative product development using computer aided design tools;
  • development of second generation or improved products;
  • tooling and equipment fixture design and development;
  • developing unique computer numerical control programs;
  • designing innovative programmable logic controllers;
  • designing innovative manufacturing equipment;
  • prototyping and three-dimensional solid modelling;
  • designing and developing cost-effective and innovative operational processes;
  • integrating new materials to improve product performance and manufacturing processes;
  • evaluating and determining the most efficient flow of material;
  • designing and evaluating process alternatives;
  • designing, constructing, and testing product prototypes;
  • developing processes that would meet increasing regulatory requirements; or,
  • streamlining manufacturing processes through automation.

History of Tax Credits

Research and development tax relief was first introduced in 2004, as part of the Government's agenda to build a modern knowledge-based economy and improve productivity. At the time it was introduced, many other major economies were already operating R&D tax incentive schemes.

When it was introduced, it was a 20% credit on R&D expenditure in excess of the expenditure incurred in 2003 (the base year). As the scheme continued, the base year was fixed at 2003 until 2014, when it was removed (with effect from 1 January 2015).

The payable credit was introduced in 2008, with an increase in the rate of relief to the current rate, 25%, the same year.

What our clients say

Your next steps

To find out how we can maximise your R&D tax credits, email or call us now on +353 1 566 2001 - in under 15 minutes we’ll advise you if your development activities will qualify for R&D tax credits.

contact us